Latest Gains from Mineral Contract Renegotiations

According to yesterday’s article on the Financial Times, AngloGold is reported to have also reached a contract renegotiation settlement with government of Tanzania . The move follows similar renegotiations with Barrick Gold and Resolute mining companies.Lately, there has been a growing public outcry that the country benefits little from the growing mining sector. The newly elected government promised to roll back some concessions and renegotiate all mining contracts to arrive at a “win win” situation between government and investors.Some of the gains from renegotiation excerise are:

a) Removal of 15% additional capital allowance on unredeemed qualifying capital expenditure. This tax holiday had effectively delayed payment of 30% corporate tax until the mining company had recouped costs of their initial capital. The removal of the clause will move forward the day when companies with start paying the corporate tax. Barrick Gold has agreed to pay $7 million a year for 5 years as advance payment for corporate tax. AngloGold will start paying the corporate tax in year 2011, four years earlier than initially expected.

b) Mining companies will pay yearly $200,000 to the local government near their respective gold mine to be used for community projects.

c) Removal of exemption to Resolute from paying corporate tax on foreign employees. The removal of this clause will force Rosolute to pay $2.2 million yearly in corporate tax.

d) The mining royalty will remain unchanged at 3% despite claims that it is one of the lowest compared to other gold producing African countries.

A Government-formed committee came up with the following recommendations to be incorporated in existing and future mining contracts:

a) 100% depreciation in capital for the first year reduced to 80%, and then 50% the year after.

b) Withholding tax on technical services increased from 3% to 5%.c) Service fees for administrative expenses increased from 3% to 15%.

“What a public relations debacle for the CCM dominated Bunge! This had the unintended consequence of making Zitto a martyr more than he could have imagined himself to be. CCM’s Bunge seems to have lost the public touch by demonstrating the ugly side of its parliamentary majority.In many ways Zitto case was weak, and I thought Karamagi did a pretty darn good job of demolishing most of his arguments. However, few can question Zitto’s patriotic intentions for bringing the motion. It no longer matters whether the questions he raised were fictitious or circumstantial; what we saw is that finally somebody put himself on the line to demand answers when answers had not been forthcoming.Zitto may have been wrong in questioning Karamagi’s integrity the way that he did (I quote, “…Waziri ameeleza maelezo ambayo siyo sahihi, amedanganya na ameeleza vitu ambavyo kwa kweli sivyo ambavyo vipo katika mkataba ambao ameusaini“) but ganging up on him while questioning his intelligence, his motive, belittling his experience and his research abilities on an issue of substance backfired on CCM MPs.People and their MPs are facing, as we like to call it, ‘information starvation’. Clearly, majority of the public was not fully aware that the mineral contract review process had come to and end, were unaware of the findings, improvements and modifications in the reviewed contracts, and were under the impression that signing of new mineral agreements and contracts was suspended until the review process was complete. I myself remember asking on a different topic in here if indeed a moratorium on new mineral contracts had been ordered by the President…Therefore, the crisis is borne out of information starvation that has created a lot of speculation among the public on what is happening within the mining sector. There is lack of transparency not only in mining contracts but in all other stormy issues, such as corruption allegations at BOT etc. It has made the public agitated and yearning for answers. So its no wonder that folks like Zitto, on behalf of the public, are forced to go out looking for any informaton they could find and use that to raise questions or doubts with hope of prompting satisfactory answers from the Govt. And when neither side wants to reveal its sources and the basis of its arguments, the result is the unecessary brinkmanship on the part of the opposition and showmanship on the part of CCM that we witnessed in the Bunge last week.All of this could have been avoided if information was readily available. Karamagi should have made available to Parliament copy of the Buzwagicontract so that any doubts over its favorability could be put to rest. Bunge needs to have subpoena powers to demand Govt documents such as contracts made available to them. Currently the Constitutional powers it has to demand such documents seems to be flatly ignored by the Govt. The question is why? How does this behaviour conform to good governance principles?And I wish goodluck to any CCM leader who tries to justify the merits of signing a mineral contract at a hotel in London! Thats a political minefield right there. Indeed there may no longer be legal differences or contractual constraints between signing it over there or at Golden Tulip in Oysterbay or Tujivinjari Guest House in Manzese. Signing in London can make sense in today’s fast paced business deal making environment but its just not politically or symbolically tasteful. Its interesting to see how the opposition is gradually mastering the 101 of African politics – empathize with the common folk even when you know you are bullshitting…”

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